In a bid to combat the looming scarcity of the Naira, the Central Bank of Nigeria (CBN) has taken decisive action by recommending a reduction in the growth of money supply. The CBN’s Monetary Policy Committee (MPC) members believe that this measure will strengthen monetary reserves and enhance the economy’s resilience against potential disruptions in the future.
The urgent need for this recommendation arises from the CBN’s recent disclosure that currency outside the banking system surged to N1.4 trillion in March, indicating a significant 66% increase from the previous month’s N843 billion. This surge can be attributed to the Supreme Court’s order to reintroduce old banknotes, namely the N200, N500, and N1,000 denominations, until December 31, 2023.
The MPC also recognizes the importance of curbing inflationary pressures caused by the surge in circulation. To achieve this, controlling the expansion of money supply is deemed crucial.
Adamu Edward, a member and Deputy Governor of the Corporate Services Directorate at the CBN, expressed concerns in the CBN’s Communique for the May MPC meeting. He stated that the growth in money supply has not been adequately restrained according to the established benchmarks for the year.
Edward believes that slowing down the growth of money supply will not only rebuild monetary buffers but also strengthen the economy’s resilience against future shocks while curbing inflation.
Momodu Omamegbe, a member and Head of Strategy at the Securities and Exchange Commission (SEC), stressed the importance of prudent management of money supply to prevent the recent increase in currency circulation from fueling inflationary pressures.
Omamegbe emphasized the central bank’s commitment to controlling inflation and acknowledged the time delays in policy transmission, highlighting the need for effective currency management strategies.
By diligently managing the money supply, the CBN aims to achieve price stability, foster sustainable economic growth, and safeguard the nation’s economic prosperity.
The CBN’s Money and Credit Statistics report for May 2023 revealed an 8.7% month-on-month increase in currency in circulation. The Currency in Circulation (CIC) reached N2.5 trillion compared to N2.3 trillion in May, continuing the upward trend observed since March 2023 when it was recorded at N1.6 trillion.